Immigration Is Good for Economic Growth. If Europe Gets It Right, Refugees Can Be Too.

09/15/2015 09:24 am ET | Updated Sep 15, 2015
  • Jonathan Portes Director of the National Institute of Economic and Social Research
SVEN HOPPE via Getty Images

LONDON -- So far this year, more than 430,000 migrants have crossed the Mediterranean to enter Europe -- more than twice the number who did so in 2014. Given their countries of origin (the largest proportions from Syria, Eritrea and Afghanistan), most are likely to have a credible claim for refugee status, and few are likely to be going home anytime soon. Many are here to stay.

Some view this as a humanitarian crisis and others see it as a challenge and a threat. And then there are the economists! Economists tend to see a large influx of refugees not as an obligation or a threat -- but as an opportunity. In particular, Europe faces a major demographic challenge: our population is aging, and, in many countries, shrinking. The EU's total fertility rate is not much over 1.5 children per woman -- you don't need to be a demographer to work out the long-term implications. Indeed, if it weren't for migration, the EU's working age population would already be shrinking.

Last year, deaths exceeded births in Greece and Italy (where the vast majority of the migrants arrived) and in Germany (where the largest number end up). Germany's economy is creating jobs faster than the natives can fill them. Surely the answer is obvious -- Europe should not only accept refugees, but welcome the consequential increase in the labor force. As Thomas Piketty, the celebrated author of "Capital in the 21st Century," recently wrote, the crisis represents an "opportunity for Europeans to jump-start the continent's economy."

Economists tend to see a large influx of refugees not as an obligation or a threat -- but as an opportunity.

It is undoubtedly true that the economic case for immigration is strong. In the U.K., the period of high immigration that began in 1997 and intensified in 2004 with the extension of free movement rights to the new member states of central and eastern Europe, is generally recognized as having a positive economic impact. It has resulted in a substantial increase in overall employment and hence GDP without any significant negative impacts on the employment prospects of the native-born.

And while the resulting growth in population has certainly increased pressure on public services, this is more than compensated by increased tax revenues. Nor has the changing population necessarily had a negative impact on social outcomes. For example, while there is much debate about the recent extraordinary improvement in the performance in London's schools -- perhaps unparalleled in the developed world -- it is generally accepted that the children of recent immigrants have at least something to do with it.

Moreover, beyond demographics, immigration could also improve Europe's economic performance over the medium-to-long-term in a number of ways. Immigrants bring different skills and aptitudes and can transmit those to non-immigrant colleagues (and vice versa). They can increase competition in particular labor markets, increasing the incentive for natives to acquire certain skills. Indeed, evidence from Denmark suggests a refugee influx in the late 1980s had just this impact. And workplace diversity can boost productivity, as a number of U.S. and U.K. studies have shown.

This will not be painless or cost-free, either for the refugees or for the host countries.

But a note of caution is in order here. The operative word in all of this is "could." While many refugees are well educated or highly skilled, not all are; and, more pertinently, unlike most "economic" high-skilled migrants, they are not coming here because of job or career opportunities. There is nothing automatic about their success, either in the labor market or in society as a whole.

Recent OECD research makes this point. Some European economies and societies are far more successful than others in integrating immigrants into their labor markets. While in the U.K., immigrants are only marginally more likely to be unemployed than natives, in Spain, Greece, Belgium and Sweden there is a gap of 10 percentage points or more. Similar divergences appear on other indicators: for example, France, Germany and Finland all have worrying gaps between the educational performance of children of natives and the children of immigrants.

The reasons for these divergences are complex and varied, ranging from the cultural and religious backgrounds of immigrants, to racial and religious discrimination and exclusion, to the different labor market institutions of different European countries. But if we want to realize the very large potential gains from this new wave of immigration, policy must not just be about where to put the new arrivals and how to deal with their resettlement in the short term, but how to ensure that they integrate successfully, both economically and socially. And this will not be painless or cost-free, either for them or for the host countries.

With good will and hard work, Europe can prove the pessimists wrong -- and the economists right.

I will conclude on an optimistic note. I arrived in London in the early 1970s, the child of (American) immigrants. Nobody really noticed or cared about a university professor and his family moving to take up a new job. However, roughly at the same time, several tens of thousands of refugees arrived from East Africa -- ethnic Indians who had been expelled, sometimes abruptly and violently and generally with little or nothing in the way of possessions.

Unlike mine, their arrival in the U.K. was controversial to say the least. The Telegraph told of how the "Invasion of Asians Forces Borough to Call for Help"; The Sun described the "Storm Over the Two-Wife Migrants"; and The Mirror complained about the "Scandal of Day-Tripper Immigrants." Forty years later, a conservative minister would describe them as "one of Britain's greatest success stories."

Making that happen with the current influx of Syrians, Eritreans and others won't be easy or painless, and it will take years or decades -- not weeks or months. But with good will and hard work, Europe can prove the pessimists wrong -- and the economists right.

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